1 INTERNAL INVESTIGATIONS PRACTICE GROUP Internal Investigations: Five Tangible Benefits of Responding Promptly and Decisively to Reports of Misconduct By: Laurel Brandstetter, Esq. / LEECHTISHMAN.COM
2 Internal Investigations: Five Tangible Benefits of Responding Promptly and Decisively to Reports of Misconduct By: Laurel Brandstetter, Esq. Never before have company executives, public officials and other highly visible individuals and organizations had to endure the fish bowl we live in today. Thanks to social media and 24-hour-aday news coverage, reports of criminal activity and wrongdoing have the capacity to be broadcast quicker and linger longer than ever before. Living in a world where instant access is so readily available, corporations and organizations should engage internal investigations counsel as soon as a problem is detected or reported. Conducting an internal investigation allows counsel to: Evaluate your business practices; Identify possible problem areas; and Prevent further harm to you or your organization. Additionally, if you are involved in a situation where information on official investigations or criminal charges have been released to the public, engaging white-collar defense and investigations counsel early on enables individuals and organizations to respond proactively and mount aggressive defenses because your counsel has had the opportunity to gain detailed insight on you, your organization and your industry. Drawing on our experience conducting long-term, agency-wide investigations and prosecuting hundreds of criminal matters, Leech Tishman has identified five tangible benefits of responding promptly and decisively to reports of misconduct: 1. Satisfy Disclosure Requirements 2. Halt Misconduct 3. Initiate Good-Faith Response 4. Shield Leaders from Allegations of Complicity 5. Promote Transparency For many organizations, the failure to respond to allegations of wrongdoing or the failure to cooperate with outside investigations often results in more profound, longer-lasting damage to the entity and individuals responsible.
3 The initial disclosure of a potential problem can take many forms: General Counsel receives a call from the Director of Human Resources reporting that an employee is accused of submitting false bills to a government entity. Your company is served with a subpoena seeking records indicating a criminal investigation is under way. The Chief Executive Officer receives an anonymous tip that someone is stealing from the company or accepting kickbacks. The entity must then take the essential step of retaining outside counsel to conduct the investigation. Experience and recent court decisions suggest that use of outside counsel retained specifically for the investigation provides the greatest possible protection of confidential material. The first step outside counsel will take is to create an investigative plan defining the scope of the investigation and its objective. The investigation will then commence and involve witness interviews and the gathering of relevant material. Ultimately, a report may be provided, which customarily outlines the significant facts and events, provides an assessment of the source and cause of the wrongdoing and makes recommendations for remedial action. While these investigations can be complex and timeconsuming, doing nothing can have a far reaching negative impact on an entity s public image. The following is a discussion of the benefits of pursuing Transparency and Compliance using examples from today s headlines to make the case for independent internal investigations. 1. Satisfy Disclosure Requirements How an entity responds to a potential crisis often shapes its image long after the matter is resolved. A comprehensive understanding of the relevant facts and risk involved is critical to an organization s decision making process as it considers how to deal with publicity, what to disclose and how to remedy and prevent further misconduct. Consider the recent incident involving NFL running back Ray Rice:
4 CASE STUDY: RAY RICE INVESTIGATIONS In April 2014, Ray Rice, running back for the Baltimore Ravens of the NFL, was arrested for assaulting his then- fiancée, now wife, in a casino elevator. The NFL suspended Rice for two games but did not conduct an outside investigation into the incident. In September 2014, a video from inside the casino elevator surfaced, depicting Rice punching his fiancée in the face. In reaction to the video, the Ravens cut Rice and the NFL suspended him indefinitely. Now, the NFL and the NFL Players Association are each conducting their own internal investigations into the incident, the NFL s response, and whether the video was available to NFL officials in April The NFL failed to independently investigate the April 2014 assault. As a result, it lacked the requisite facts to respond to the brutal assault properly and effectively. The fallout from that failure has been profound. In some instances, there are legal mandatory disclosure requirements. Without a full understanding of the conduct, general counsel will be unable to assess whether those mandatory reporting requirements have been triggered. Failure to comply with mandatory reporting requirements can trigger civil or criminal liability. For example, failing to disclose corruption in connection with government contracting or violations of the civil False Claims Act can result in suspension, debarment, criminal charges of bribery, conflict of interest, theft or fraud-related charges. The Foreign Corrupt Practices Act and other statutes impose varying levels of disclosure requirements. As discussed below in the context of Penn State, those vested with the duty to disclosure may face criminal charges for their failure to do so. There are many current examples of the consequences for failing to report: Penn State officials were arrested and charged for their failure to report ongoing child abuse when legally mandated. A BP executive awaits trial for obstruction charges relating to his failure to disclose that the amount of oil gushing into the Gulf could have been far higher in volume than the amount publicly disclosed.
5 GM was fined $35 million for failing to act, disclose and recall cars affected by their defective ignition switches. Disclosing the results of an internal investigation might also serve to insulate the entity from prosecution and allow for the negotiation of non-prosecution agreements or deferred prosecution agreements. 2. Halt Misconduct Often organizations ignore allegations of misconduct. Immobilized by fears of potential culpability or negative publicity, management may fail to take action or fail to disclose. The results are frequently catastrophic. Rather than acting to halt the misconduct they become culpable for the ongoing wrongdoing. CASE STUDY: PENN STATE Consider the findings contained in the Report of the Special Investigative Counsel Regarding the Actions of The Pennsylvania State University Related to the Child Sexual Abuse Committed by Gerald A. Sandusky. At the request of the Board of Trustees, Freeh Sporkin & Sullivan, LLP, conducted an internal investigation of the facts and circumstances raised by a grand jury report and criminal charges against Jerry Sandusky, a former assistant football coach. The most profound finding of the internal investigation was that the most powerful men at Penn State failed to take any steps for 14 years to protect the children who Sandusky victimized. As early as 1998, Penn State officials knew of an allegation of a sexual assault of a young boy by Sandusky.
6 An immediate and decisive internal investigation of that incident or the report of a 2001 assault could have led to actions that would have halted the ongoing criminal conduct committed by Sandusky. While having to deal with a crisis and potential publicity in the immediate term, the result would have been far less damaging than the ongoing assault of young boys and the significant publicity and criminal charges directed at Penn State s failure to act. 3. Initiate Good-Faith Response The ability to demonstrate a good-faith response to misconduct can mitigate damage and shape the public s response to a potential crisis. with families who lost loved ones as a result of the defect. Anton R. Valukas, a former United States attorney, conducted the investigation, prepared the report and made its findings public. The report was critical of what it coined the GM nod or the GM salute, which was part of a culture of buckpassing and minimal accountability. Despite what some would deem a devastating blow to GM s reputation, GM has emerged with a new image of integrity and is manufacturing some of the best cars in its history. This is due, in large part, to GM s ability to stay one step ahead of the crisis. CASE STUDY: GENERAL MOTORS While FIFA took a step toward transparency by undertaking an investigation, In February 2014, it has thwarted GM initiated its own a efforts recall by of keeping more than the 2 findings million cars secret. based upon ignition switch defects. In the wake of public outcry, GM named a new Vice President of Global Vehicle Safety, commissioned an internal investigation and met CASE STUDY: FIFA Contrast GM s efforts with the current image crisis facing FIFA and World Cup soccer. FIFA retained former United States Attorney, Michael Garcia, to conduct an internal investigation
7 and prepare a report of his findings regarding the bid process for the right to play host to the 2018 and 2022 World Cup tournaments. Initial drafts of the report total 430 pages in length and allege unethical behavior by senior FIFA officials during the bidding campaigns won by Russia and Qatar. Garcia has requested that this report be made public. The entire football family and those who follow the game worldwide have a full right to know the contents of the report in the spirit of complete openness, said Prince Ali bin Hussein, a FIFA vice president. In the interest of full transparency and openness, I believe it is important that the much anticipated report on the ethics investigation that is crucial to ensuring good governance at FIFA is fully disclosed. As long as the report and the investigation of corruption within FIFA remain secret, there will be an ongoing public perception that the World Cup can be bought and sold. 4. Shield Leaders from Allegations of Complicity Often internal investigators are tasked with uncovering who knew what, when and what they did about it. The answers to these questions can often shield management or the board from allegations of complicity. CASE STUDY: DEEPWATER HORIZON OIL SPILL (aka BP OIL SPILL) Who knew what, when and what they did with that information has played a critical role in the ongoing investigations and prosecutions of BP officials associated with the 2010 Deepwater Horizon explosion. For example, one executive will be tried on a charge that he obstructed a congressional investigation by failing to disclose information about the rate that oil was spewing from BP s blown-out Macondo well after the rig explosion. A former BP engineer awaits re-trial on a criminal charge that he
8 intentionally destroyed evidence requested by federal criminal authorities investigating the Deepwater Horizon disaster. In particular, the engineer is charged with deleting a string of over 300 text messages between his supervisor and a contractor concerning how much oil was spilling into the Gulf and their unsuccessful attempts to stop the flow of oil. The internal investigation commissioned by BP was geared toward discovering issues that BP could address in the short term. The focus of the investigation was steered away from decisions made by BP managers and instead focused on decisions made on the rig. Investigators were also met with resistance from contractors Halliburton and Transocean and an unwillingness to submit to interviews or share data. it s Congress or courtrooms, these companies are trying to whitewash away this dark period in our nation s environmental history. It is not enough for BP, Halliburton and Transocean to avoid talking to Congress about these oil spill reports; they don t want anyone in the courts talking about them either. The result of an incomplete, noncomprehensive report is that the questions regarding who knew what, when, and what they did about it were not adequately addressed. Further, the importance of addressing these U.S. Representative Edward Markey commented, Whether
9 questions was not properly communicated to BP officials. Thus, individuals were arrested and the companies involved remain in protracted legal battles and could not be shielded from allegations of complicity. 5. Promote a Culture of Transparency and Compliance Of all of the five benefits, promoting a culture of transparency and compliance has to be the guiding force and is certainly the one with the greatest rewards. Frank Bucaro, a Hall of Fame speaker and author on applied ethics and valuesbased leadership development, explained that, to be courageous, One must possess the ability to face difficulty, uncertainty or pain without being overcome by fear or intimidated by consequences. There is an element of courage in the decision to face misconduct head on. There must be a willingness to accept vulnerability and learn the truth so that ethical decisions can be made. This sends a message throughout organizations that ethical conduct is expected. Furthermore, it sends a message that the failure to act with integrity and honesty has significant consequences. Although the cost may be high and the risk may seem great, the result is priceless; an emergence from crisis with a greater sense of identity, transparency in governance from the top down, and a clear mission moving forward. Together, these benefits translate directly into greater success in business.
10 Laurel Brandstetter Practice Group Chair, Internal Investigations Laurel Brandstetter is the chair of Leech Tishman s Internal Investigations Practice Group and a member of Leech Tishman s Litigation Practice Group, where she focuses her practice primarily on internal investigations and white collar criminal defense matters. Laurel has 14 years of experience in criminal prosecution, trying to verdict more than 100 cases. From 2008 to 2014, prior to joining Leech Tishman, Laurel was a senior deputy attorney general for the Commonwealth of Pennsylvania, specializing in public corruption. Laurel spearheaded grand jury investigations of the Pennsylvania Gaming Control Board, the Pennsylvania Turnpike Commission and other prominent governmental agencies and officials. The investigations of the Turnpike Commission and the Gaming Control Board involved a comprehensive review of internal practices and compliance with both policy and governing regulations. In addition, Laurel led, directed and conducted investigations and prosecutions throughout the Western District of Pennsylvania. Between 2009 and 2014, Laurel presented various continuing legal education trainings to prosecutors and defense attorneys on such topics as state grand jury practice and the use of technology in the courtroom. From 2000 to 2008 Laurel was an Assistant District Attorney for Allegheny County, Pennsylvania. In the Violent Crimes and Firearms Section, she prosecuted homicides, assaults, robbery, drug trafficking and other offenses. Experience Pennsylvania Office of the Attorney General Allegheny County District Attorney s Office U.S. Court of Appeals, Ninth Circuit Clarence & Snell, LLP Office of the State Public Defender (California)
11 Internal Investigations Leech Tishman s Internal Investigations Practice Group provides an added layer of comprehensive legal service to businesses and individuals across a wide range of industries. Lawyers in Leech Tishman s Internal Investigations Practice Group, with their extensive experience, conduct internal corporate investigations, facilitate and manage investigations of governmental entities and other organizations, handle grand jury matters, assist with subpoena compliance, conduct government transparency litigation, and provide white collar criminal defense. The lawyers in our Internal Investigations Practice Group bring a unique understanding of the prosecution and enforcement function gained through service as former senior prosecutors. Their combined experience includes the successful prosecution of hundreds of criminal jury trials as well as oversight over complex, in-depth investigations of governmental entities and elected officials. White-Collar Criminal Defense Lawyers in Leech Tishman s white collar criminal defense practice are uniquely skilled and qualified to defend companies and individuals against allegations relating to every significant area of white-collar crime. These areas include: + Fraud + Waste and Self-Dealing + Misuse of Corporate or Government Property and Assets + Breaches of Government Contracting Practices + Qui tam Lawsuits + Ethics Violations by Public Employees and Public Officials + Violations of Regulations and Criminal Laws Relating to the Energy Industry and the Environment + Violations of Intellectual Property Rights